Welp, it’ll be nice to close out 2020 and look ahead to a brand-new year that hopefully features a lot less drama and much more good news.
While the housing market actually absorbed both the COVID-19 pandemic and the presidential election surprisingly well, we can probably thank the record low mortgage rates for that. And the continued lack of inventory.
That has been the silver lining for existing homeowners, but it’s created an even wider divide between the haves and the have-nots, otherwise known as homeowners and renters.
So what does 2021 look like when it comes to mortgages and the housing market? Let’s dust off the old crystal ball and make some predictions.
1. Mortgage rates will hit new record lows
As of this writing, mortgage rates hit 14 new all-time lows in 2020. And there’s a decent chance they’ll hit a 15th before the year is complete.
This has many pundits calling for an end to the low rates. Sound familiar? It does because every single year they call for higher rates, only to be proven wrong over and over.
I expect mortgage rates to hit new all-time lows in 2021, though the caveat is that they may not remain there.
In other words, we could see 30-year fixed mortgage rates reach levels never seen before in the first half of the year, before they rise back above lows seen this year.
The good news is rates should remain low throughout the year if the 2021 mortgage rate predictions hold true.
And that means those who haven’t yet taken advantage of a rate and term refinance can do so and save some dough.
2. Lenders will stay really busy, but won’t break 2020 records
Thanks in part to those ultra-low mortgage rates, banks and lenders will continue to be absolutely slammed.
This is wonderful news for loan originators and mortgage brokers, but not so great for consumers.
Simply put, things will still be slow, so be patient. It may take months to close your mortgage as opposed to 3-4 weeks.
This is just the way things are going right now and you should set realistic expectations if you’re currently shopping for a new home loan.
In terms of loan volume, 2020 mortgage originations will likely surpass the massive totals seen back in 2003.
The question is where does the mortgage industry go from here? While rate and term refis will inevitably become less prevalent in 2021, record home purchase volume of more than $1.5 trillion is expected.
That should keep the party going for mortgage lenders focused on home purchase financing, but it could prove challenging to those that are refinance-heavy.
3. The cash out refinance will re-emerge as a popular product
That being said, while rate and term refis will fade into 2021, the emergence of the cash out refinance could pick up the slack.
Ultimately, borrowers are sitting on a ton of home equity at the moment, the most in history I believe.
At some point, it’s going to be tapped via cash out refinance loans, even if borrowers are forced to take a slightly higher interest rate in the process.
The other big question related to this is will lenders loosen underwriting standards to make up for any decline in new business?
That’s where things went so badly wrong a decade ago, especially as home prices were peaking.
But maybe the Qualified Mortgage (and still decent affordability) will be the difference maker this time around.
4. Mortgage brokers will grab more market share
Now let’s talk about mortgage brokers. Largely forgotten post-housing crisis a decade ago, they’ve been making major strides lately.
In fact, the second largest mortgage lender in the nation, after Quicken Loans, is United Wholesale Mortgage (UWM).
And Quicken also runs a massive wholesale lending division as well, so there’s a good chance you’ll be working with a mortgage broker in 2021 and beyond.
Brokers had a near-35% market share back in 2008 before it fell to around 7% in 2011. Today, it’s closer to 16% and likely to grow back to 20%+ sooner rather than later.
One thing helping brokers today is the abundance of technology that has leveled the playing field.
Even a one-woman shop can offer a better customer experience than a billion-dollar bank thanks to the many tools now readily available.
That, along with access to wholesale mortgage rates from dozens of lending partners, could give brokers the edge going forward.
5. COVID-19 related foreclosures will free up some inventory
Everyone and their grandmother knows that housing inventory is abysmal. There’s just nothing out there no matter where it is you’re trying to buy a home.
Once something does come on the market, it’s being scooped up in record time by desperate home buyers.
The National Association of Realtors recently noted that properties typically remained on the market for just about 20 days in October, down from closer to 40 a year ago.
My expectation is that 2021 will be no different – it’s going to be a seller’s market yet again, which means you really need to do your homework and be prepared to make an offer immediately.
The only possible relief could come from COVID-19 related foreclosures, assuming those actually transpire once forbearance options fizzle out.
NAR also said distressed sales (foreclosures and short sales) represented less than 1% of home sales in October, which was down from 2% in October 2019.
Take the time to research how mortgages work and get pre-approved so you’re ready to make your move at a moment’s notice. But also still do your due diligence and don’t buy a home sight-unseen.
6. Home prices will continue to surge higher
That critical lack of inventory, coupled with the still-low mortgage interest rates will lead to even higher home prices in 2021.
It’s pretty simple really, just a matter of supply and demand.
Speaking of, unsold inventory remains at an all-time low of 2.5-months at the current sales pace, which is well below the near-4-month figure seen a year ago, per NAR.
As such, the Realtor group expects existing home prices to rise a further 5.7% in 2021, and that might be conservative given the red-hot housing market combined with an ongoing pandemic.
Again, excellent news for those who already homes, but another unwelcome development for the many prospective first-time home buyers out there.
7. iBuyers will regain market share and usurp real estate agents
Despite a housing market that will remain on fire in 2021, I expect iBuyers to continue to gain market share.
They got derailed last spring thanks to the emergence of COVID-19, and actually stopped purchasing homes in many markets.
But now they’re not only returning to market, but also expanding to new metros nationwide.
Folks love convenience, even if there’s a cost. And when it comes to iBuying, the cost is likely a lower sales price, meaning you walk away with less.
However, home sellers may be skittish about letting others into their homes, so going with a sure thing from an iBuyer could be just the ticket.
It also allows home sellers to pivot to a replacement property without dealing with contingencies, which are basically a no-go right now with competition so fierce.
8. Remote closings and distanced real estate transactions will be the norm
To that same end, I expect the temporary measures to keep real estate distanced will become more of a mainstay in 2021.
So those remote closings, appraisal waivers and other flexible appraisal options, along with new methods to document income and verify employment before loan closing should continue.
Additionally, we should see more technology that supports these efforts, which is a nice silver lining of the pandemic.
All the promises about making the mortgage process easier may come to fruition a lot sooner because no one wants to be near each other.
However, as noted, it’ll still take a while to get a home loan because lender capacity will remain an issue well into 2021.
9. Home remodeling will remain white-hot as homeowners stay put and spend more time at home
One trend that we saw this year will also extend into 2021, and could in fact become even more popular. I’m talking about home remodeling.
Have you tried to book a contractor lately? Good luck! They’re all busier than ever because homeowners are spending more and more time in their properties.
That has made many of us question if we should upgrade our digs, or get to those projects we’ve been putting off for years.
Most existing homeowners don’t seem to be going anywhere, as evidenced by that lack of inventory and those low mortgage rates, so they’re fixing up what they’ve got.
While you might be considering a home equity line of credit to pay for your home improvements, a cash out refinance that features a fixed interest rate could be the better option.
10. The exodus out of urban centers to the suburbs will stay on trend
Lastly, I expect the urban exodus to continue in 2021, even if the vaccine proves successful and we get our heads back above water.
The damage of 2020 on our psyches is already done, which means some just won’t consider the urban lifestyle anytime soon, or ever again.
Once forgotten, the suburbs are back with a vengeance thanks to COVID-19, and the pandemic perhaps served as a not-so-gentle reminder that more space and fresh air isn’t such a bad thing.
Sure, urban living has its advantages, but its fragility has also been exposed big time.
And with remote work and less commuting no longer just a trend, it makes a lot more sense to be anywhere, even far from a city center.